• Day-three is a blue day that opens and trades above with little or no overlapping shadows

The Abandoned Baby is a rare bullish reversal pattern characterized by a large down move followed by a doji or small candle, and then a third candle heading in the opposite direction.

The formation reflects a classic three period reversal of market sentiment where after a bearish trend, finally enough buyers enter the market to take control. They first stop the trend’s momentum (forming the doji), and then ultimately reverse the direction of the market.

This first red candle suggests a continuation of the bear market. That move is followed by a doji, where markets trade in a small range suggesting uncertainty in trend and a rally potential. Up to day two we actually have a Bullish Doji Star, moderate strength bullish pattern. After the day of indecision, a large bullish candle confirms buyers are staging a rally and reversal. The stronger the move up day-three, the stronger the reversal signal. Watch for additional bullish price action in the next few days.

In Foreign Exchange this pattern is near identical to the Bullish Morning Star Doji pattern. Outside of the FX Market Abandoned Babies require gaps between the close and open prices of subsequent candles and shadows. In fact the name Abandoned Baby suggests the doji baby candle is disconnected from the rest of the formation. This is possible because gaping is common in other less efficient markets where trading is restrained by exchange hours. Since the currency market offers 24 hour trading, gaping is rare and is only seen to a minor degree after weekends.